Betting on Mexico’s currency has paid off for investors even amid Donald Trump’s trade war.

The peso is up more than 11 per cent this year, beating all regional peers, even as it dipped Monday following the latest tariff news — a threat of a 30 per cent levy announced over the weekend. It is also one of the best performing in emerging markets.

Mexico’s high interest rates and President Claudia Sheinbaum’s tempered approach toward Trump have helped lure in cash from investors reallocating money away from the U.S. And after months of repeated delays on the implementation of tariffs, money managers have grown more complacent, with reactions to fresh announcements largely contained as they look past Trump’s threats to focus on the medium-term outlook.

“Markets know the drill,” said Marco Oviedo, a senior strategist at XP Investimentos in Sao Paulo. “The only risk that I see is if the Mexican government fails to deliver something that Trump wants on drug control that might leave tariffs high for longer or negotiations in limbo.”

Mexico’s strong economic ties to the U.S. have also worked in the peso’s favor. The U.S. doesn’t intend to apply the 30 per cent rate to USMCA-compliant goods, a White House official said on Saturday. The administration has previously said it will keep the exemption for Canada.

Although Mexican officials were taken aback by Trump’s latest tariff threat, U.S. Ambassador to Mexico Ronald Johnson said Saturday in Mexico City that Sheinbaum and Trump have a “wonderful relationship” and no partnership should be easier than between their two countries.

Sheinbaum said Monday during her daily press conference that her government expects to reach a tariff deal with the U.S. before an Aug. 1 deadline and has a plan if talks fail. A Mexican trade negotiating team was in Washington on Friday discussing the issue.

The country’s rate differentials are another factor helping prop up the currency. The central bank has been cautious when lowering interest rates, keeping the peso on the radar of carry traders who borrow in lower-yielding currencies to buy those that offer higher yields. One-week implied volatility in the peso, which spiked amid U.S. elections last year and again in April amid tariff threats, has remained largely subdued.

After delivering a half-point cut that left the key rate at eight per cent last month, Governor Victoria Rodriguez embraced the likelihood of smaller reductions going forward in a July 9 speech. That helped the peso inch higher last week, outperforming as developing-world currencies slipped amid the latest barrage of tariff announcements.

The rally in Mexico has gone beyond the currency. Local bonds and stocks have also gained in the wake of Trump’s so-called Liberation Day on April 2 amid a positive backdrop for emerging markets as the dollar slips.

“The peso is trading incredibly well in the face of this,” said Eric Fine, portfolio manager for emerging markets debt at Van Eck Associates. “This reaction has many explanations, but EMFX and interest rates have had a great year despite tariff-dominated news flow.”

Bloomberg strategists say, “The proposal lacks clarity, particularly whether it replaces or supplements the existing 25 per cent fentanyl-related levy, and does not address the treatment of USMCA-compliant goods. This omission is notable given that, as of May, approximately 83 per cent of U.S. imports from Mexico were exempt from tariffs due to USMCA provisions. The high amount of exemptions provides a large buffer to the potential fallout from Trump’s trade letter.”

Bloomberg.com